WOOD Flash – Atrium: 3Q20 – postpones decision on dividend; does not expect significant yield shift by year-end

Atrium’s 3Q20 earnings were in line with our expectations. The LTV edged slightly higher qoq, to 37.5%, and the occupancy continued to erode, reaching 93% at the end of September. With the lockdowns and the restrictions on non-essential shops having been reintroduced now in both Poland and the Czech Republic, the tough negotiations with tenants regarding rent support are likely to restart, and we expect occupancy to drop further by the year-end. Management noted that its discussions with appraisers suggest that, in absence of transaction evidence, it is unlikely that we will see a significant yield shift during the year-end results. That said, this is unlikely to dispel investors’ worries about the actual fair value of the assets, in our view. In Russia, the RUB has lost around 20-25% of its value vs. the EUR so far this year, which is amplifying the pressure on the tenants there. The dividend (currently exceeding the FFO by around 35%) has been maintained for 4Q, and will be reviewed during the full-year results. If the board decides to maintain the dividend, we see a risk that this could push the leverage into uncomfortable territory. Especially if Atrium accelerates its share buyback, even a small revaluation loss recorded during 4Q20E would be enough to push the LTV above 40%. While trading at 0.5x P/NAV, the valuation is undemanding, we expect the sector to continue to face headwinds, and we do not see many drivers in the near term that could prompt a multiples rerating.